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(1) The department will evaluate a transaction to determine if it is a loan using standards in the Uniform Commercial Code, the Internal Revenue Code, and generally accepted commercial lending practices. Loans will also be evaluated in the context of overall financing of the business to determine that a loan rather than an ownership interest exists and that the contract does not grant the lender control of the licensed operation.

(2) Institutional lenders may secure loans made to a license applicant or licensee with security interests on assets belonging to the applicant or licensee. In securing the assets of a license applicant or licensee, an institutional lender may limit the movement of the assets, including a liquor license.

(3) For loans made to a license applicant or licensee, an institutional lender may require loan guarantees and may secure guarantee agreements with assets of the guarantor.

(4) An institutional lender may require payment from loan guarantors without initially exhausting all remedies against the borrower under the following conditions:

(a) if the guarantor is an owner of the applicant/licensee, i.e., partner, shareholder, member, and payment is made with the owner/guarantor's own funds or funds borrowed from an institutional or division approved noninstitutional source;

(b) if the guarantor is not an owner, payment may only be made as a loan to the owners or licensed borrower/entity. Funds used to loan the money for the payment under the guarantee, must be the guarantor's own funds or funds borrowed from an institutional source. The guarantor must also be found suitable as a source of credit as part of the application or loan approval process by submitting a personal history statement (Form 10) and a complete set of fingerprints (Form FD-258).

(5) A loan guarantor must annually elect to treat payments made under a loan guarantee agreement as loans, paid in capital, or other equity contributions, as required by the Internal Revenue Code.

(a) If the guarantor elects to treat the payments as loans to the licensee, the licensee must follow requirements for disclosing noninstitutional lenders found in ARM 23.16.120(7).

(b) If the guarantor elects to treat payments as an equity contribution, and such election changes the percentage of ownership in the license, an amended license application must be filed with the department at the time of the election to disclose the change.

History: 23-5-115, MCA; IMP, 16-4-801, 23-5-115, 23-5-118, 23-5-176, MCA; NEW, 1997 MAR p. 404, Eff. 2/25/97; AMD, 2010 MAR p. 1732, Eff. 7/30/10.

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